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Risk and the Smart Investor : General Finance & Investing - David Martin

Risk and the Smart Investor

General Finance & Investing

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Master the most important investing skill of all—DECISION MAKING

“De-risking your investmentsrequires knowing that there ismuch you don’t know.”
–David X Martin

Risk exists because of one simple fact:Decisions are always based on incompleteinformation. Therefore, to meet your investmentgoals over the long term, you mustlearn to manage the risks associated with adecision-making process that is by natureflawed. Risk and the Smart Investor provides aframework for making such decisions.

Avoiding unrealistic promises of completelyrisk-free investing, world-renownedrisk management expert David X Martinfamiliarizes you with the principles of riskmanagement. Based on Martin’s experiencein managing risk at several of the world’slargest financial institutions, this principlebasedapproach presents a unique perspectivethat helps you manage the risk in everyinvestment you make.

Risk and the Smart Investor provides notonly a framework for managing risk in today’smarkets, it also prepares you to handlethe next financial crisis—which is coming,sooner or later—by separating risk managementinto four separate processes:

  • Assessment—know where you are,but accept the fact that you cannotknow everything
  • The Rules of the Game—determineyour appetite for risk, diversifyaccordingly, demand transparency,and institute checks and balances
  • Decision Making—consider allalternatives, fit your plans into specifictime frames, and always have anexit strategy
  • Reevaluation—continually monitor theoutcomes of your decisions and learnfrom your mistakes

Praise for Risk and the Smart Investor

“Interesting and instructive. A good book for those who want to learn about risk and build this knowledge into their financial decisions.”
—John Reed, former CEO, Citigroup

“David Martin has produced a popular yet serious post-financial crisisreflection on the fundamentals of risk management as a living process. Rich inexperience and wisdom, Risk and the Smart Investor is both a useful handbookbrimming with insights, and a moral tale for our times. Simply a must-read forevery serious investor, risk manager, and just about everyone else.”
—Michael Power, professor,London School of Economics and Political Science

“David Martin knows risk and the active investor and his book proves it.”
—Jerry Lieberman

“This book is like having your own mentor to guide you throughrisk management decisions.”
—William Rhodes, Chairman, Citigroup and Citibank

Book Table of Contents-Overview

Before the Principles - Set up of the risk principles, decision framework and examples of how they are applied.



Section I - How to assess the situation you are in or the decisions you need to make



Principle 1 - Check emotions at the door, know where you are - understand the facts of the situation, not the hype, check emotions at the door

Principle 2 - Know what you don't know - question the assumptions you make, it is better to make a wrong decision than to have been oblivious, the inevitable unfolds quickly Principle 3 - Risk is measured & managed by people not mathematical models, important to understand change/inflection points





Section II - Know the rules of the road and how to create the best possible outcomes

Principle 4 - There is no return without risk - know your own risk appetite

Principle 5 - Be transparent - risk should be fully understood and discussed openly Principle 6 - Diversify - multiple risks will produce more consistent rewards Principle 7 - Checks and balances are good Principle 8 - Recognize that risk is not an epiphany, it involves blocking and tackling every day



Section III - How to make the right decisions

Principle 9 - It is better to be approximately right, than to be precisely wrong Principle 10 - To be effective - risk is everyone's responsibility in the decision-making process, need to be independent Principle 11 - Understand the importance of your reputation, be mindful of who you are doing business with Principle 12 - Fit your decision-making into specific time frames and keep in mind that your desires may change





Section IV - What tools should I use?



Principle 13 - Scenarios help you visualize plausible but unusual outcomes from different decisions Principle 14 - A decision weighting matrix will help you quantify what's on your mind Principle 15 - Create tripwires to manage the situation and not be lulled into inactivity





Section V - How do I assess that I made the right decision? Principle 16 - Know your boundaries; stay in the lane, if you are unsure, ask, re-invention is good Principle 17 - Monitor the outcomes, continuously reassess



Section VI - It's important to learn from your mistakes Principle 18 - Internalizing bad decisions and reflect on how you can optimize current situation

ISBN: 9780071743495
ISBN-10: 0071743499
Series: General Finance & Investing
Audience: Professional
Format: Hardcover
Language: English
Number Of Pages: 288
Published: 9th September 2010
Country of Publication: US
Dimensions (cm): 23.6 x 16.3  x 2.6
Weight (kg): 0.56
Edition Number: 1